7.1 Who can invest in Mutual Fund-

  • Individual Investor: Individual investors can be classified as –

a.  Resident Indian Adult  Individual – An Indian Citizen, above the age of 18 years, is eligible to invest individually or jointly in a mutual fund scheme. Maximum three persons can invest in a scheme as applicant and co applicants. The individual below 18 years of age (MINOR) can invest through their parents or lawful guardians. In case of minor, the KYC documents of parents/ lawful guardian is required.

b.  Non- Resident Indians (NRI)/Persons of Indian Origin(PIO) - Non-Resident Indian means a person resident outside India who is a citizen of India. Person of Indian origin means a citizen of any country (other than Bangladesh or Pakistan) who had at any time held Indian passport or he or either of his parents or grandparents was a citizen of India by virtue of the constitution of India. NRI/POI can invest in India on repatriable basis or non repatriable basis. While executing paper work of investment,  they have to provide documentary evidence of PIO (Person of Indian Origin) card or OCI (Overseas Citizenship of India) Card. Repatriable basis means that proceeds on redemption of investments can be remitted abroad. Non Repatriable basis means  redemption proceeds can not be remitted abroad.

c.  Hindu Undivided Family (HUF) – Head of the family, known as Karta of HUF, can invest in mutual fund scheme on behalf of his family. This investment will be treated as the collective investment of the family.

d.  Foreign Investors - Investors from other countries can also invest in mutual fund scheme in India according to the guidelines issued by SEBI. Those who fulfill the requirements of investment are called Qualified Foreign Investors.

  • Non Individual Investors – Following non individual investors can invest through their authorized officials :

Companies / Corporate Bodies registered in India

Registered societies,

Cooperative Societies

Religious, Charitable and Private Trusts,

Association of Persons,

Body of Individuals,

Partnership Firms,

Banks,

Financial and Investment Institutions,

SEBI Registered Mutual Funds,

SEBI Registered Foreign Portfolio Investors,

Government approved  International Multilateral agencies , Army/Navy/Air force / Para Military units,

Research Organisations,

Educational Institutions

Foreign Portfolio/Institutional Investors can invest either by way of their Demat Account (DP) or through indirect route i.e. Unit Confirmation Receipt.

  • All investors can invest in any scheme barring a few schemes wherein only specified types of investors can make investment. For example, some Gilt schemes have specified that only PF Trust, Superannuation, Gratuity or Pension Funds, Religious and Charitable Trusts can invest. Hence it is always better to go through the “WHO CAN INVEST” section of the Scheme Information Document (SID).

7.2  Know Your Customer (KYC) compliance for Investors:

Every investor (Individual/non Individual) has to be KYC compliant. Every investor is required to submit documents related to proof of identity and address at point of Service, commonly known as PoS, to complete process of KYC. At the time of investment in mutual fund schemes. Investors need to submit acknowledgement for having completed the KYC process issued by KYC Registration Agency (KRA).

7.2.1 KYC Documents

Investors  need to submit following documents to complete KYC process : 

(A) PAN (Permanent Account No) Card with photograph is mandatory for all investors as proof of identity. only following investors are exempt from producing PAN Card –  Investment (including SIP and lump sum investments) upto Rs 50,000 per investor per year per mutual fund, investors residing in Sikkim, and a few other investors. However, these investors need to  submit alternate documents such as Voters ID Card/Passport/Photo Ration Card/Driving License or other photo identity card as proof of identity.

(B) Proof of Address  such as Voter ID Card/Passport/Photo Ration Card/Driving License or other photo identity card. Proof of address in the name of spouse is also accepted. Self attested copies of the said  documents need to be submitted. Original documents need to be presented for personal verification purposes.

7.2.2 KYC Registration Agencies

SEBI has instituted a centralized KYC process for all the investments related to capital market including Mutual Fund. KYC Registration Agencies (KRAs) facilitate this centralized KYC process. Centralised KRAs have made the KYC process simpler for investors.  Mutual Funds, depositories, registrar and transfer agents, KYD compliant mutual fund distributors and brokers are authorized to facilitate the KYC documentation of investors.  

7.2.3 KYC Process

(A) Investors can submit  the requisite KYC form along with  self attested copy of supporting documents of identity and address proof. Original documents are shown for verification purposes. If original documents are not produced, then copy of supporting documents of identity and address proof need to be  attested by Public Notary/gazetted officer/Manager of a scheduled bank. Thereafter the requisite KYC form and supporting documents are uploaded in the server of any centralised KRA. Now the KYC process is complete.

(B) KYC for Minors – KYC requirements have to be complied with by the guardian. On becoming major, the minor investor has to complete KYC process.

(C) KYC for Power of Attorney (PoA) Holder

Investment can be made through Power of Attorney but KYC compliance of both persons i.e. investor and power of attorney holder are done.

(D) KYC for NRI Investor

PAN is the sole identification number for KYC compliance of NRI investors. Copy of Passport/PIO Card/ OCI Card and overseas address proof is mandatory.

Once the KYC of an investor is done by a KRA, investor has to submit only the acknowledgement letter issued by the KRA for any investment in the Indian capital market. Investors can change or update their KYC related information by completing the prescribed procedure.

7.3  Exemption of PAN for making Investments

It is mandatory to give Permanent Account Number (PAN)  to  make investments in Mutual Fund. Exception are given to individuals, minors, sole proprietary firms and NRI if their investments, including Micro Sip, does not exceed  Rs 50,000 in a year per mutual fund. But even these investors are also liable to complete KYC process. Instead of PAN  the investors, including Joint Holders, can submit any one of the following Photo Identification documents for KYC verification:- Voter Identity Card, Driving License, Passport, Photo Ration Card, Photo Debit Card, Photo Id cards issued by Bank Manager, Gazetted Officer or  Member of Parliament/MLAs, PRAN card issued by NSDL or any other Photo ID issued by Government agencies for KYC purpose. The documents must be current and valid and the copy shall be self-attested /attested by ARN Holder. Such relaxation is given to NRI but not PIO.

7.4  Additional requirements for Institutional Investors

7.4.1 Institutional investors are required to submit some additional documents towards proof of eligibility to make investment in mutual fund. Such documents are Memorandum of Association, Articles of association, Trust Deed or a certificate issued by appropriate authority in this regard. In some states, permission of Charity Commissioner is also needed, before Religious and Charitable Trusts can invest. Also Board resolution regarding investment and List of Authorized Signatories to sign the documents of investments are also.  

7.4.2 All the investors (except Individuals, Listed companies and their subsidiaries) need to provide the details of Ultimate Beneficial Owner of the investment and also submit documents to establish their identity. UBO is the person who owns or is entitled to more than 25 percent shares or profits of a company, or more than 15 percent in case of partnership and body of persons, or more than 15 percent of benefits of a trust. UBO declaration form alongwith required documents have to be submitted to AMC/RTA.

7.5  Foreign Account Tax Compliance Act (FATCA) & Common Reporting Standards (CRS)-

Mutual Funds are required to undertake Due Diligence process to identify foreign reportable accounts. Mutual Funds need to collect required information and report the same to US Internal Revenue Service or to any other foreign Government or to Indian Tax Authorities. Indian Tax Authorities will  onward transmit them to the concerned foreign authorities. The information is to be provided if the Citizenship/Nationality/Place of Birth/Tax Residency of the investor is the places other than India. The information is to be submitted by all the value of the investments of all the folios will be reported. The identity of the investors and their direct and indirect beneficiaries and controlling persons will be reported. Any change in the status of investor is to be reported within 30 days to Mutual Fund.

7.6  Demat Account-

Conversion of investor’s holding of investments from material form (paper/physical form) to digital form is called Dematerialization. Conversion of demat units from Digital to material form is called Re-materialization.

Investor needs  to open a Demat account with a depository participant (DP) if he wants to take mutual fund units in demat form. Investor has to complete the KYC documents and provide Pan Card along with an agreement for opening a demat account.

The access of demat facility for mutual fund investor has increased with NSE and BSE providing screen-based platform for transactions in mutual fund schemes.

Mutual Funds are required to provide investors the option to hold units in demat form. They have to obtain an ISIN for each option of the scheme and make this information available in the account statements sent  to investor. The Application Form of all the mutual funds schemes provide the details of Demat Account so that  investor may  hold units in demat form.

Benefits of Demat Account:

a. Less paper work.

b. Bonus units are automatically credited into demat account of the investor.

c. Only one demat account is sufficient to hold investments in Mutual Fund, direct equity and debt instruments.

d. Any update or change in investors detail can be given to DP and will automatically update the required changes in all investments related transactions. Investors are not required to inform separately to all concerned AMCs.

7.7  Mutual Fund Transaction Process

7.7.1  Fresh purchase of units in a scheme can be made during the new fund offer (NFO) period or even after that in an open-ended scheme. To make an investment, an investor is required to fill the application form of the scheme  with all required documents  and amount of investment. Application form can be downloaded from the website of the AMC of concerned mutual fund. Application Forms can be obtained from office of the concerned AMC/Distributors or Investor Service Centers. Investors are required to complete the prescribed documentation process in tune with the Key Information Memorandum (KIM). Thereafter, the mutual fund will allot a folio in favor of investor.

7.7.2  If investor  has  invested earlier and already has a folio with the mutual fund, he does not have to fill application form to invest in the same mutual fund. He can  just  fill folio no and amount of investment only on the transaction slip and then submit the same with the requisite payment for investment purpose. This is known as additional purchase.

7.7.3  Online Transactions- Many AMCs/Distributors provide online platform to make investments/repurchase/switches based on user ID/Password created on their websites. Payments for purchases can also be made through online banking channel.

7.7.4  Investors have the option to invest directly without routing the investment through distributors (Direct Plan). In this case, they have to mention “Direct” in the space provided in the application form for entering  AMFI Registration No (ARN) of the distributor. Alternatively, the investment could be routed through distributors (Regular Plan) by providing details of ARN.

7.7.5  For initial purchase, as discussed earlier while discussing eligibility, all information relating to unit Holder, Status whether minor or major, Power Of Attorney holder, KYC acknowledgement, Other details like occupation, Politically exposed persons status, FATCA and CRS details, Bank Account details including IFSC code, Demat account details, Investment details like choice of scheme/plan/option and payout option, nomination details, Unit holding option (Demat or physical) and payment details like cheque  particulars need to be provided on the application form.

7.7.6  A mutual fund investment can have upto three holders . First holder is treated primary investor. First holder gets all the benefits of investment like dividend, redemption proceeds and tax benefits.

7.7.7  Payment Modes and Mechanism- Mutual fund investments can be made through Cheque/Demand draft/NEFT/RTGS. Cheques/DDs need to be payable at par at the locations where the application form and cheque is submitted. Cheque should not be post dated except for sip investments. Cheque should not be stale i.e. cheque date should not be more than 3 months older than the date  on which it is being deposited in bank. Third party payments are not accepted except in special cases. Exceptions are: Parents / Grand Parents / Related persons making investments on behalf of minors not exceeding Rs Fifty Thousand or employer making payments on behalf of employees. All payment should be in tune with the provisions of anti-money laundering regulation and other guidelines issued by regulatory authorities.

7.7.8  Cash investment is limited to Rs 50,000 (Rs Fifty Thousand) per mutual fund per investor in a financial year. The investor has to be KYC compliant and the facility of cash is limited to only resident Individuals, sole proprietorship and minors through guardians. Repayments in form of redemptions, dividend payments can be only through banking channels. Stock Invests, Postal Order, Money Order are not accepted for investments.

7.7.9  Under Electronic payment modes, Internet banking through RTGS (Real Time Gross Settlement), NEFT (National Electronic Fund Transfer) are the effective way to make payments for mutual fund investments. SWIFT (Society for Worldwide Interbank Financial Telecommunication) is used for payment from abroad. ECS (Electronic clearing service) is the most suitable payment mode for investments like SIP. If mutual fund scheme and investor both are having bank account in the same bank Standing Instructions commonly known as direct debit can be one of the best payment modes for investment.

7.7.10  Mobile banking/ E Wallets/ Unified Payment Interface (UPI)/ Aadhar enabled payment service (AEPS) / One Time Mandate (OTM) has also become popular now a days.

7.7.11  It is advisable to get correct bank account details from AMC/Distributor to ensure remittance reaches correct account.

7.7.12  Investor can choose the payment method called ASBA (Application supported by blocked amount) for Mutual fund NFOs. In this process money is transferred from investors account to the mutual fund account only on the allotment of units and till that time investor can earn bank interest on the invested amount from their bank.

7.7.13  NRI/PIO applications need to be accompanied by cheque drawn on an NRO/NRE/FCNR account (for non repatriable investment) or NRE/FCNR account (for repatriable investment).

7.8  Investment Procedure

7.8.1.  Allotment of Units–

Units in an NFO are issued at face value i.e. Rs 10. In subsequent investments, investment amount divided by the sale price would be the number of units, the investor gets. In case transaction is through a distributor, there may be transaction charges payable to distributor and in such a case, transaction charges will be deducted from investment amount and units will be allotted out of the net value. In case of Bonus Issue, there is no payment from investor. The fund allots new unit for free. The NAV of units gets proportionately reduced post bonus issue.

7.8.2.  Re-purchase/Redemption:

Any investor having units under Open end scheme can go for repurchase of units, which is commonalty known as redemption, by filing the required transaction slip. Re-purchase price can be determined by subtracting exit load from the effective NAV. After execution of re-purchase process, the holding of the investor is reduced by the number of unit repurchased. If the investor’s holdings in the folio go below the minimum  number of units as required by mutual fund, all the  remaining units are repurchased and the investor’s folio is closed. Units are redeemed on First In First Out (FIFO) Repurchase / Redemption proceeds are paid to the first holder.

7.8.3.  How redemption / repurchase proceeds paid to Investor:

(a) Redemption/repurchase proceeds can be paid to the investor by cheque or Demand Draft.

(b) Redemption/repurchase proceeds can be transferred to the investor’s bank account through electronic mode  provided investor holds an account with a bank with which mutual fund has an arrangement to make direct credits.

(c) Other electronic modes include RTGS/NEFT/ECS/NECS.

(d) For units held in demat form, redemption proceeds will be paid into the bank account registered with the DP.

7.8.4.  Instant Access Facility (IAF):

Mutual Funds can offer IAF only in Liquid Schemes. Monetary limit under IAF is Rs 50,000 or 90% of latest value of investment in the scheme, whichever is lower. This limit is applicable per day per scheme per investor.

7.8.5.  Units held in demat form

Units held in demat from are redeemed through the Depository Participant (DP) on receipt of duly completed redemption form. DP electronically executes the request and forwards to AMC. AMC makes payment to the investor’s bank account directly. NRIs  get proceeds of re-purchase in Indian Currency. If  the investment has been made on repatriable basis and NRI investor requests to transfer the money abroad, the costs for converting the rupees into foreign currency will be to the account of investor. Repurchase Proceeds of investments made on repatriable basis can be credited to an  NRE or FCNR account, as requested by In case of redemption by NRI, there will be tax deducted at source as applicable.

7.8.6.  NAV applicability and Transactions Timings-

SEBI has prescribed cut off timings to ascertain the NAV to be applied to purchase, redemption or switch. All transaction requests are submitted at the  official Points of Acceptance (OPoAs) where time stamping is done by a tamper proof stamping machine. In case of online transaction,  the time of web server is considered as the time of punching. We can tabulate the Transaction time and NAV applicability mechanism as below:

Type of SchemeTransactionCut off timeApplicable NAV
Equity oriented funds and debt funds (except liquid and Overnight funds) in respect of purchases less than Rs 2 lakhsPurchases and Switch ins3:00 PMSame day NAV if received before cut off time.
Next business day NAV For Applications received after cut off time
Equity oriented funds and debt funds(Except liquid and Overnight funds) in respect of transaction equal to or more than Rs 2 LakhsPurchases and Switch ins3:00 PMIrrespective of the time of receipt of application, NAV of the business day on which the funds are available for utilisation without availing of any credit facility before the cut-off time of that day is applicable.
Liquid and Overnight fundsPurchases and Switch ins1:30 PM
(w.ef.20/10/19)
If application received upto the cut off time and funds are available for utilisation before the cut-off time without availing any credit facility, then closing NAV of the previous day is applicable.
If application received after cut-off time and funds available for utilisation on the same day without availing any credit facility, closing NAV of the same day is applicable.
Irrespective of the time of receipt of application, where the funds are not available for utilisation before the cut-off time, without availing any credit facility, closing NAV of the day immediately preceding the day on which the funds are available for utilisation.
Equity Oriented funds, Debt funds (Other than liquid Funds)Redemptions and switch outs3:00 PMSame day NAV if received before cut off time.  
Next business day NAV For Applications received after cut-off time.
Liquid FundsRedemptions and switch outs3:00 PMNAV of day immediately preceding the next business day, if received before cut off time.
If redemption request is received through instant Access Facility(IAF) upto the cut off time, then the lower of :(a) NAV of previous calendar day and (b) NAV of calendar day on which application is received.
Next business day NAV For Applications received after cut off time.
If redemption request is received through Instant Access Facility(IAF) after the cut off time, then the lower of :(a) NAV of  calendar day on which such application is received  and (b) NAV of next calendar day.

The above Cut-off timing is not applicable for NFOs and International Schemes.

  • Stock Exchange based Mutual Fund Transactions- Bombay Stock Exchange and National Stock Exchange both have established trading platforms to facilitate the mutual fund transactions which remain functional between 9 am to 3 pm on every business day. Stock Exchange brokers, who are AMFI qualified distributor, can do the mutual fund transactions through these platforms. The stock brokers need to be empanelled with AMC with whom they want to do business. BSE platform is called StAR Mutual Fund Platform and NSE platform is called NEAT MFSS.
  • Redemption requests can be in number of units- Transactions are otherwise entered in the system based on proposed value of purchase or redemption.
  • The stock exchanges together with their clearing entity handle the first leg of the transaction of handling investors’ subscription or repurchase request- The stock exchange will provide the details of order to the mutual fund and to the depository for validation. Members settlement account is then debited and funds are transferred to mutual fund. Mutual Fund will then process the order and credit the units to investors demat account.
  • The second leg of the transaction of sending units against the investors subscription or sending money against repurchase request is the responsibility of AMC/RTA. Hence stock exchanges offer a transaction platform only and do not replace the AMC/RTA.
  • Fresh subscription in open end scheme, additional purchase, redemption etc. may be done in physical form or demat form. Normal stock exchange redressal mechanism is applicable for investors complaints but the ultimate responsibility lies with the AMC.
  • Mutual Fund Utilities (MFU) – MFU is a platform that connects AMCs, RTAs, Distributors, Banks and others. It provides distributors online access to submit investor transactions and single point for time stamping of transactions, documents submission, paperless transactions and a login facility for clients.
  • KYC compliant Investors can register on MFU on which all their mutual fund holdings are consolidated. The MFU offers a common transaction form to transact in multiple schemes across participating mutual funds using a single form. The investors can request online access for submission of transactions and view holdings.

7.9. Investment Plans : Options for getting returns from Mutual Funds-

There are two main options offered by mutual fund schemes – Growth and Dividend. Dividend option has two sub categories -  Dividend  pay out option and Dividend reinvestment option. In case of debt schemes, the dividend pay out option has further sub categories like daily, weekly, monthly, quarterly, half yearly and annual pay put options.

In growth option, No dividend is declared and the NAV reflects the full gain in the value of portfolio.

In Dividend payout option, the fund declares dividend from time to time. Mutual Fund has to pay Dividend Distribution Tax also before paying dividend. Post dividend, NAV of the scheme falls to the extent of dividend and dividend distribution tax paid.

In Dividend Reinvestment option, Dividends are declared but not paid. The dividends are reinvested in the same scheme. However dividend distribution tax is paid. NAV declines to the extent of dividend and dividend distribution tax. Investor does not get amount of  dividend in his bank account. Investor gets additional number of units on account of dividend declared.

7.10.  Systematic Transactions:

In order to meet various investment needs of investors, Mutual Funds have structured transactions of investments, redemptions and switches through systematic route. These transactions are termed as Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP) and Systematic Transfer Plan (STP).

7.10.1. Systematic Investment Plan (SIP)- Under this plan, investment is made at specific periodic intervals which averages the cost of acquisition. It allows investor to buy in a volatile market over time at an average price without predicting market movements.

7.10.1.1. SIP also helps  investor to develop a saving habit by investing  small sums periodically.

7.10.1.2. Mutual Funds have facilitated investors to make investment through the route of SIPs by investing through Post dated cheques (PDCs), ECS or by standing instructions (SI)

7.10.2. Systematic Withdrawal Plan (SWP) – Like unit purchase, Investors can plan redemption/withdrawal also in a systematic manner. Under this plan, investor does not end up in an unfortunate position of redeeming the entire investment in one go at a low market. However, the effect of exit loads and taxation need to be considered while planning SWP. Mutual Funds have facilitated registering of SWP periodicity and amount.

7.10.2.1. As a variation of SWP, some mutual funds give the option of redeeming only the gains and not the original investments.

7.10.3. Systematic Transfer Plan (STP)- Under this plan, a fixed amount is withdrawn from one scheme (Source scheme) and is  invested in some other scheme (Target Scheme) of the same mutual fund. A fixed amount  at a fixed periodicity,  as instructed by the investor, is transferred from one scheme (known as source scheme) to another scheme (known as target scheme) of the same mutual fund. Effectively it is a SWP for the source scheme and SIP in target scheme. Exit loads and taxes will apply on the first leg of plan i.e. withdrawal leg. Investors can use STP  as a good and convenient tool for rebalancing the portfolio or for booking profits in a volatile market.

7.10.4. Dividend Transfer Plan (DTP)– Under this plan, the dividend earned in a particular mutual fund scheme is invested into another scheme of the same mutual fund. With this, investors can transfer dividends of a Debt fund to equity funds. Similarly dividends earned in equity schemes can be transferred to debt fund. The amount of dividend transferred will be after deduction of statutory levies like DDT.

7.10.5. Mutual Funds specify the schemes in which the facility of  SIP/SWP/STP/DTP are available. Minimum  period of plan, minimum amount of plan and the periodicity is also specified. Mutual fund may also offer the facility to increase the installment amount of the SIP. A new  investor can start investment in SIP of a scheme by submitting application form alongwith a SIP enrollment form. Investor has to be  KYC compliant. SIP enrollment form will  mention SIP amount, Scheme, plan, option, Sip frequency, start and end dates of the SIP period. For existing investors, application form is not needed. Existing investor needs to submit only the SIP enrollment form with existing folio number. Bank account details also need to be provided. Payment modes include post dated cheques, electronic modes like ECS, direct debit and Standing Instruction.

7.10.6. An additional facility to enhance the SIP is also provided by mutual funds which is called SIP Top Up facility. SIP amounts can be increased at the intervals chosen by the investor. It helps investors  increase their savings with passage of  

7.10.7. SIP can be renewed by submitting a renewal form giving details of scheme, plan, option, SIP amount and SIP date and period. SIP can be cancelled also by giving a notice as specified by AMC by providing SIP details. The bank mandate has also to be cancelled.

7.10.8. SWP is cancelled when all units are redeemedInvestor can chose to cancel the SWP by giving a notice to AMC in writing giving full details of SWP mandate.

7.11. Other Investor Services-

  • Various other services are provided by Mutual Funds to the investors to facilitate smooth transactions like Triggers, providing account statement/certificates, Nominations, Lien of Units, Change in Folio details and Transmission of Units. The prominent ones are discussed below

7.11.1.  Triggers- 

These days, Mutual Funds provide option to investors whereby triggers can be set which facilitate execution of certain actions on happening of specified events as chosen by investors themselves.

  • If triggers are set by investors, various opportunities presented by market will not be missed.
  • The triggers could be related to purchase or redemption of units on happening of a particular event in the market. For example, an investor can set a trigger to transfer money from debt fund to an equity scheme when market goes down by 20%. Similarly, an investor can set a trigger to transfer a portion of his investments  from equity scheme to  debt fund when market goes up  by 25%.

7.11.2. Account Statements –

Mutual Funds issue Statement of Account every month to investors if there is a transaction during the month. Details of the transaction like  sale or purchase, value of transaction, the relevant NAV, number of units transacted, closing balance of units held and value of those units based on the latest NAV is shown in the statement.

  • Additionally, a consolidated Account Statement (CAS) is sent to investor by post or e mail for each calendar month. CAS is sent by 10th of the succeeding month in case there is a transaction in the fund during the preceding month. For sending CAS, investor will be identified across mutual funds by their PAN. If no PAN is available, individual account statement shall be sent to the investor.  In case there are no transactions during six-month period, a CAS detailing the holding across all scheme of all mutual funds at the end of every six-month period (September/March)  shall be sent.

7.11.3.  Nomination –

Investors can make nomination to have clarity as to who will be entitled to the withdrawal of Mutual fund balance in any unfortunate event of the death of investor. Nomination can be made in favour of a maximum of three nominees. The unit holder must define the percentage holding for each nominee. If the percentage is not specified, it will be presumed to be equal.

  • In case of Single holder, nominee must be specified until the investor  has clearly mentioned his intent not to make any one as his nominee. Nomination in a folio applies to all the investment in that folio. If percentages of share in nomination is not clearly indicated in case of more than one nominee (Maximum three are allowed), the share will be considered to be equal.
  • Only individual Investor can make nomination. However, nominees can be Individual, minor, NRI, Government and local authorities. A nomination can be changed or cancelled any time by the investor.
  • For Units held in dematerialized form, nominee specified for the demat account will apply.
  • If one joint holder dies, then the units will continue to be held by the surviving joint holder. If all surviving joint holders die, then the units will be transferred to the nominee’s subject to KYC documentation of nominee, Death certificate of the deceased and an indemnity.

7.11.4.  Pledge and Lien of Units –

Mutual Fund Units can be pledged against loans through a pledge form. The units that are offered as security against a loan should have completed the lock in period, if any.

  • A non-individual entity has to attach a Board Resolution or authorization also.
  • The dividend pay out on units under lien may be paid to unit holders or lender depending on the agreement.

7.11.5.  Change in Folio Details –

Any change in the personal information such as name, address, status and contact details earlier provided need to be updated with the KYC Registration Agency (KRA) by a change form.

  • The KRA will communicate the change to all mutual funds. Other details like bank account, mode of holding or nomination has to be updated with each of the mutual funds separately.
  • Individual has to provide, Name. Date Of Birth, PAN or PERN (PAN exempt reference number) and Aadhar number as per original KYC documents to update with KRA.

7.11.6.  Transmission of Units –

Units are transferred to the person entitled in the event of death of unit holder and this process of transfer is called Transmission.

7.11.6.1.  In case of Joint Holding, if  the first holder passes away, the second holder is substituted as the first holder. In case of a single holder, the units will be transferred to nominees. In case there are no nominees, the units are transferred to legal heirs.

7.11.6.2. The request for transmission need to be submitted along with following documents:

(a) Letter from surviving unit holder / claimant  to the mutual fund requesting transmission of units.

(b) Death Certificate in original or duly attested / notarized copy  thereof.

(c) KYC compliance of surviving holder / claimant, as the case may be.

(d) Bank account details of new first unit holder.

(e) If the transmission value exceeds Rs 200,000 , then an indemnity bond to be given by nominee / legal heirs, as the case may be.

(f) Succession certificate or notarized copy of probated will to be submitted by legal heirs.

7.11.6.3. If the transmission is being made to a minor, then the guardian has to comply with KYC and bank mandate requirements.

7.11.6.4. Units of ELSS Scheme (which are under lock in period of three years) can be transmitted only after completion of at least one year from date of allotment of units to the now deceased investor.

7.12.  Other Provision-

As part of other investor services, SEBI has prescribed the timelines within which various transactions of the investors need to completed by Mutual Funds/AMC.

  • For example, Allotment in a NFO is to be completed in 5 days of close of NFO, Dividend warrants must be dispatched within 30 days of declaration, Redemption proceeds to be dispatched in 10 days of redemption, Allotment confirmation to be sent by email/SMS within 5 days of transaction request. CAS to be sent within 10 days of the end of month of transaction. On request by investor, AMC to send account statement within 5 days of request.
  • In case of any default or delay in payment of redemption proceeds or dividends to the unit holders, an interest @15% is payable by AMC to the investor and the same can not be charged to scheme expenses.
  • Other value-added services provided by AMCs and institutional distributors are online access to all information on investment, Daily NAVs, Portfolio valuation, income booked, capital gains working, Returns earned etc.
  • Three fourths of the unit holders of any scheme can pass a resolution for winding up that Mutual Fund scheme.

Quick Revision

[WATU 14]

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